Springer digital economy and social design (2005 springer verlag)

Osamu Sudoh (Ed.)
Digital Economy and Social Design


Osamu Sudoh (Ed.)

Digital Economy and
Social Design

Springer


Osamu Sudoh, Dr.
Professor
Graduate School of Interdisciplinary Informatics
The University of Tokyo
7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033, Japan

Library of Congress Control Number: 2005922604
ISBN 4-431-25467-6 Springer-Verlag Tokyo Berlin Heidelberg New York
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Printed on acid-free paper


Preface
The advent of the digital economy has the potential to dramatically change the
conventional interrelationships among individuals, enterprises, and society, and to
make a considerable qualitative difference to major socioeconomic systems. The
expanded applications of information technology have actually lowered the significance of boundaries between organizations and between countries, and have
intensified competition among businesses and institutions. In addition, a paradigm
shift of unprecedented dynamism is emerging in a very broad range of areas, from
the world economic order to personal lifestyles. In the business world, for instance, more cross-sector collaborative relationships are being established and different business models are being integrated. In government, citizens' participation
is growing and administrative ftmctions are changing. Communications between
different cultures via the Internet are expanding. In industrial, economic, institutional, educational, cultural, and many other spheres, interactions among different
communities or countries are gathering pace and structural changes are accelerating at national and transnational levels.
These structural changes have just begun recently. Many are not frilly in place.
But there can be little doubt that to achieve vigorous socioeconomic development
in the twenty-first century, people will have to aggressively use information technology to boost innovation and to organically link the results of that innovation to
solutions to global environmental issues and social challenges such as the opportunity divide.
The digital economy has in fact been posting steady growth, even since the
bursting of the new economy bubble. We now need dispassionate analyses of the
impact of information and telecommunications technologies on socioeconomic
systems and the development of a practical institutional design. In this sense, the
compilation of such analyses into a single book is timely.
This book is based on an international conference on the establishment of the
digital economy and the evolution of socioeconomic systems. The conference was


VI

Preface

held on February 27, 2003, at the University of Tokyo. It was organized by Research Project A06, entitled "Researching the Emerging Global Information
Economy and Designing a New Social System," which I had the honor of leading.
This project has been designated as one of the "Informatics Studies for Building
the Foundation of Deepening Information Technology," and as such is eligible for
subsidies from the Ministry of Education, Culture, Sports, Science, and Technology to cover scientific research costs. The conference was cohosted by the Institute of Socio-information and Communication Studies at the University of Tokyo.
Benefiting from the participation of an audience with a broad interest in the economy, business administration, and many other issues, the conference enjoyed a
lively discussion. This book is a substantially rewritten version of the conference
proceedings, adopted after strict peer review by anonymous reviewers and reflecting both the discussions that took place at the conference and subsequent trends in
economic society.
The book consists of three parts, each featuring papers mainly based on theoretical research and papers centered on empirical research. Each part examines one
topic, as follows:
Part I. The Macro and Micro Economic Aspect
Chapters 1 to 3 examine the impact of informatization on the overall socioeconomic system, what will be necessary to make effective use of information and
knowledge to sustain the development of society and the economy, whether or not
new technological innovation will aggravate inequality, and what skills, techniques, and institutional design will be required to ensure that different individuals
and groups can broadly reap the benefits of the digital economy.
Part II. The Nature of Competition
Chapters 4 to 6 focus on the functions performed in the network society with its
constantly changing organizational boundaries by the mechanism of credit rating
and selection in the market, how businesses compete with one another in the digital economic environment, and how this competition differs from the existing
competition.


Preface

VII

Part III. Structural Changes
Chapters 7 to 9 assess how the digital economic environment changes the structure
and management of enterprises and the government, how businesses, the government, and citizens will change after the information society emerges, and what
forms of governance should be adopted.
The digital economy is by no means an inexorable and deterministic phenomenon. Rather, it is an ever-changing social framework. It is of significance to researchers. The object of their study is so complex that it often involves complex
relationships. We are responsible for taking advantage of the opportunities opened
up by the digital economy and for turning those opportunities into things that reflect our values and goals. This publication will have achieved its goal if the exploration and questions it raises serve as a signpost for other research projects and
policy making.
I would like to conclude this preface by expressing my sincere gratitude to all
those who offered support and cooperation in the publication of this book. In particular, I would like to give special thanks to Ms. Reiko Gotoh for her outstanding
contribution to the planning and compilation of this publication, serving as a research partner in the project "Researching the Emerging Global Information
Economy and Designing a New Social System" and also as secretary of the international symposium "The Establishment of the Digital Economy and the Evolving
Socioeconomic Systems." I am also deeply indebted to Dr. Yuichiro Anzai, a professor of Keio University and field representative for "informatics" and others
who willingly agreed to proofread for us, to the editorial staff at Springer-Verlag,
Tokyo, for their great help with the publication of this book, and to the Ministry of
Education, Culture, Sports, Science, and Technology for financially supporting
our research project.
Osamu Sudoh
February 2005


Contents
Preface

V

Part I: The Macro and Micro Economic Aspect
1. The Knowledge Network in the Digital Economy and Sustainable
Development
Osamu Sudoh

3

2. Controllability of Technological Paradigm Shift and Sustainable
Growth: An Empirical Research on 1970-2002 Japanese Economy
Shungo Sakaki

39

3. Capital-Skill Complementarity in the United States and Japan
ReikoGotoh

64

Part II: The Nature of Competition
4. Organization-Issued Cash in a Digital Economy
Hiroshi Deguchi

97

5. Strategic Alliances and Innovative Performance in Network Industries:
The Case of the Mobile Internet in Japan and Europe
Michael Haas and Franz Waldenberger
126
6. Value Creation on Networks and in Corporate Activities
Jiro Kokuryo andYoko Takeda

152

Part III: Structural Changes

7. The Evolution of Organizational Structures in a Networked Society:
The Case of Finland
Paul Lillrank

167

8. Research and Development Partnerships Bridged by the Intermediate
Domain: A Research Provider in the Semiconductor Industry
Hideyuki Tanaka

184


Contents

9. Regional Management and e-Democracy in the Information Society:
Communications among Citizens and Officials on the Website
Provided by Local Governments for Good Local Management
Ich iro Sh inka i and Ko ich i Na ito

210

Index

233


Part i: The Macro and Micro Economic Aspect

1 The Knowledge Network in the Digital
Economy and Sustainable Development
Osamu Sudoh

Graduate School of Interdisciplinary Informatics, The University of Tokyo, 7-3-1,
Hongo, Bunkyo-ku, Tokyo 113-0033, Japan,
Summary
Today, the global environment represents the most crucial issues we will have to
face. Based on the principles of sustainable development, local residents, the
government, local authorities and companies must cooperate under the banner of
participatory local democracy, with nonprofit organizations (NPOs) playing a key
role as junction points, to work toward the environmentally-friendly development
of local communities. These local communities then need to be linked on a global
scale to create a worldwide network for the development of a society that is geared
towards preserving its environment. On this chapter, we consider on the
interactive relationship between the market economy

and

technological

development, and the evolution of information technology (IT) and the digital
economy. Next, based on these trends, we will examine the relationship between
the formation of a networked society and regional development. We will then go
on to consider how IT and information networks can contribute to a new form of
social development that is environmentally friendly.

Key Words Digital economy. Web-based community. Sustainable development,
e-Govemment, Knowledge network

4

Osamu Sudoh

1.1 Introduction
Looking into the twenty-first century, the global environment represents the most
crucial issues we will have to face. Yet, it is no easy task to come up with a basic
design for the sustainable development of mankind, or to implement this basic
design on more concrete levels. In reality, there is a complex web of factors, with
each country facing its own specific problems that reflect its unique history,
creating numerous conflicts of interest.
In the long term, as the threat of global environmental destruction grows ever
greater, global networks that link regions to the world may prove a powerful force
in the formation of new societal standards that will triumph over these
nationalistic interests. Based on the principles of sustainable development, local
residents, the government, local authorities and companies must cooperate under
the banner of participatory local democracy, with

nonprofit organizations

(NPOs) playing a key role as junction points, to work toward the
environmentally-friendly

development of local communities. These local

communities then need to be linked on a global scale to create a worldwide
network for the development of a society that is geared towards preserving its
environment.
This chapter begins with a look at the interactive relationship between the

market economy and technological development, and the evolution of information
technology (IT) and the digital economy. Next, based on these trends, we will
examine the relationship between the formation of a networked society and
regional development. We will then go on to consider how IT and information
networks can contribute to a new form of social development that is
environmentally friendly. More specifically, this chapter takes the case of the
Zero-Emissions Research Initiative, and examines how the expansion of the
digital revolution should be used to promote sustainable development.


The Knowledge Network in the Digital Economy and Sustainable Development

5

1.2 The Market Economy and Industrial Networks

1.2.1 The Interactive Relationship Between the Market Economy and
Technology
After World War II, a model for economic development that centered on mass
production and mass consumption took hold in developing countries, and the
world witnessed widespread environmental destruction. The causes of this
massive degredation of the environment can be broadly divided into two. The first
is the large-scale destruction of the environment that was brought on by the
materialistic, wealth-oriented economic systems built by advanced nations, or
namely systems of mass production and mass consumption, and the mass disposal
that accompanied them. The second is the deterioration of natural resources, such
as forests, water and soil, caused by poverty in developing countries, foreign
exchange shortages and specializations in commercial crop production, the
amassing of land by certain privileged classes, and rapid population increases.
These two forms of environmental destruction are connected in complex and

interactive ways.
Throughout the twentieth century, the words "progress" and "development" in
most cases were used to mean "economic progress" and "economic development,"
and it is no exaggeration to say that the natural environment was seen as a given,
and in this short-sighted view, the expansion of monetary wealth and material
benefits took priority. Moreover, with the exception of localized water and air
pollution, little consideration was given to the destructive effects of economic
activities on nature until global environmental problems became much more
serious.
Yet, economic activities dramatically boosted productivity (and our power over
nature), and as a result, economic activities and technology came to have a
massive impact on the natural environment. The assumption that the natural
environment was a given for economic activity had by this stage become a thing


Osamu Sudoh
of the past. Let's begin by looking at the relationship between the market economy
and technological development.
Here we shall look at the interactive relationship between technology and the
market, based on the observations of Michael J. Piore and Charles F. Sable (Piore
and Sabel 1984:38-48).
Piore and Sable have made some very interesting observations about the
relationship between technological progress in America, England and France in
the early nineteenth century and domestic markets. According to their findings,
early nineteenth century America suffered from a shortage of highly-skilled
workers, and unlike Europe, did not have guilds that restricted the organization of
production. There were also numerous affluent independent farmers who had a
certain degree of purchasing power. Given these market conditions, entrepreneurs
needed to organize production processes to reduce their dependence on labor, and
this in turn required the introduction of labor-saving machinery. What's more, the

independent farmers, who comprised the majority of the consumer base, willingly
bought up the standardized products manufactured using this machinery. By then,
the foundations had already been laid for the development and introduction of
mass-production technology in America.
Meanwhile in France, while French farmers owned the rights to control their
own land, as did farmers in America, unlike their American counterparts, the
majority of French farmers owned small plots of land and their livelihoods were
not integrated with the market economy. Demand for manufactured goods thus
came only from the aristocracy, bourgeois merchants, bureaucrats and the few
affluent farmers.
Yet regional markets were very diverse in nature, causing segmentation in the
domestic market. Guilds existed in France and although they did not have very
strong regulatory powers, the highly-skilled workforce and sophisticated
techniques cultivated by the guilds were used to develop new manufactured goods
and manufacturing processes. These market conditions encouraged the French
economy to specialize in producing a wide variety of high-quality goods. As such.


The Knowledge Network in the Digital Economy and Sustainable Development
there was very

little incentive in France to develop and

7

implement

mass-production technology at this time.
In early nineteenth century England fell somewhere between the two extremes
of America and France. Land enclosure moves in England created a sharp division

amongst independent farmers, with the majority of farmers losing control of their
land and migrating to urban centers as workers.

This generated a huge market

for low-cost consumer goods in urban areas, while there was also a market for
low-cost consumer goods in the colonies. On the supply side, merchandise
production was beginning to be organized by those who had evaded the guild or
state regulations. Meanwhile industrialization flowed over into rural areas,
increasing the population density in rural areas, and as a result consumer
preferences in regional areas became more stable. As England had an abundance
of both skilled and unskilled workers, entrepreneurs did not need to come up with
labor-saving initiatives. Consequently, while England developed mass-production
systems in the cotton textiles, food processing and brewing industries, market
conditions did not facilitate the aggressive development and introduction of
non-labor intensive standardized mass production technology that was seen in the
United States.
In this way, the "market" had a very different social function in each of these
countries because of their differing economic climates. For this reason, the path of
technological progress in each of these countries differs greatly, a reflection of
their individual market peculiarities. Therefore, when examining the relationship
between environmental problems and economic growth, we cannot consider the
two in binary opposition, but must rather fully understand the interactive
relationships between the underlying market characteristics, social systems,
technology, governments, and social customs.

1.2.2 The Development of Industrial Networks
In nineteenth century Europe and America, many industrial areas achieved
economic growth after organizing local industry networks. Some classic examples

8

Osamu Sudoh

of this include the silk textiles manufacturing industry in Lyon, the cutlery and
specialty steel manufacturing industries in Solingen, calico manufacturing in
Alsace, cotton textiles manufacturing in Philadelphia, and specialty steel
manufacturing in St. Etienne. Piore and Sabel believe that there were specific
mechanisms that facilitated economic growth in these areas (Piore and Sabel
1984:19-48).
Below are some important commonalities between these advanced industrial
areas at the time, as identified by Piore and Sabel.
First, these industrial areas had found ways to readily adjust the combination of
technology and capital equipment in the industrial system to adapt flexibly to
fluctuations in demand. In Lyon and Solingen for example, small specialty
producers joined together to form local industry networks. But there were no fixed
relationships between prime contractors and sub-contractors, and the relationships
between companies, or more accurately, the relationships between work places,
were flexible and dynamic, with companies sometimes being the prime contractor
and then at other times the sub-contractor. Therefore, the relationships between
work places were organized and re-organized as needed to respond to fluctuations
in demand, and local industry networks were formed that were both diverse and
flexible.
Second, the work places and factories in these industrial areas placed great
importance on innovation and worked to improve productivity, while they also
had the capacity to flexibly cater to demand fluctuations and the ability to create
new markets. In addition, producers made concerted efforts to adapt and apply
technology

developed

for diversified

applications. This meant that the

development and use of advanced technology within these areas was fiercely
competitive.
In Lyon for example, the Jacquard loom was developed in the first half of the
19^^ century. With the introduction of the Jacquard loom, punch cards were used to
control textile patterns, increasing precision, and enabling the textile patterns to be
changed simply by replacing the punch card. Using this Jacquard loom, the Lyon
textiles industry could successfully adapt to fluctuating demand. Meanwhile,


The Knowledge Network in the Digital Economy and Sustainable Development

9

research into steam-powered engines and gasoline engines was underway in
Solingen.
Third, to facilitate stable development of local industry, the local industry
networks established systems that were very similar in nature to local
co-operatives. For example, in Solingen and St. Etienne, vocational training
schools were set up for the general benefit of the local community, and training
and retraining in skills and techniques was systematically conducted. This
provided a foundation for local communities, and enabled producers to cope with
changes in technology and fluctuating demand appropriately. It also actively
encouraged workers to develop expertise, scientific knowledge and creativity,
ensuring continued innovation. The systems devised ways of acquiring not just

techniques and skills, but broad-based information and knowledge, they
maintained cooperative relationships between workers and management, and
endeavored to restrict low-price competition that generates wage cuts and
declining quality. In other words, they maintained economic order in the local
community, and applied harsh entry restrictions to prevent excessive competition,
ensuring that the welfare of members of the community was kept above a certain
level.
In short, the many companies, or rather work places, in each industrial area, (1)
became highly specialized, and ensured that production could be adapted to
demand, and therefore (2) there was an invisible collective impetus throughout the
community which encouraged the rapid adoption of technological developments
and the latest technology in industry, thereby promoting competition. Meanwhile
(3) price and wage competition, which would impede the adoption of
technological innovation or the latest technologies in industry, was restricted
through labor-management agreements, and market entry was restricted to ensure
that the local community's high-quality human resources were regenerated. In this
way, they responded to market fluctuations whilst maintaining a balance between
cooperation and competition, and organized the market place.
So local industry networks were formed in nineteenth century Europe, and
there were many successful examples of economic development in which


10

Osamu Sudoh

competitive

and

regulatory

tools

were

used

with

harmony

between

market-oriented and non-market-oriented systems.
Subsequently, the 1920s saw the emergence of mass production systems used
by the corporate giants. The plants constructed by American automaker Ford
Motor Company in the period between the two great wars represented the new
paradigm. The mass production system developed by Ford, otherwise known as
the Ford System, was subsequently adopted around the world. After World War II,
improvements to the social welfare system for unemployment benefits, pensions
and health insurance reUeved anxieties over unemployment, retirement and illness,
while the introduction of installment sales generated a mass consumption base that
would absorb this mass production. A development model based on mass
production and mass consumption and known as Fordism, was established, and
from the late nineteenth century through to the mid twentieth century, we saw the
gradual disappearance of the development model that had centered on globally
dispersed local industry networks.
Meanwhile, advanced counties like the United States, Western European
countries and Japan invested large volumes of energy and resources to achieve

remarkable economic growth. Under Fordism, economic growth is the major
prerequisite for all manner of social ftinctions, and innovation and mass
production-mass consumption are essential elements in achieving economic
growth. Even with an inequitable distribution of wealth, economic growth and job
security mean that corporations can reap greater profits and workers can earn
higher wages. Additionally, the consumption levels of the majority of the
population is dependent on their income from wages, so the government now had
to give priority to expansionary economic policies to sustain and generate
employment, otherwise they would lose the support of the populace. Not adopting
policies for economic expansion would result in less tax revenue, which would
harm fiscal resilience.
Any environmental considerations at this point would have been little more
than stopgap measures. Resources and energy were consumed in vast quantities,
and corporate profit-motivated innovations and initiatives meant that products that


The Knowledge Network in the Digital Economy and Sustainable Development

11

could still be used were simply discarded. Awareness of resource utilization and
the environment started to grow in advanced countries from the late 1960s and
1970s, sparking a re-examination of the mass production-mass consumption
concept. Yet the economic growth that had been sustained for thirty years since
the end of the war was beginning to decline. Starting the 1960s, the growth rate of
labor productivity went into a gradual decline, damaging profitability, and the two
oil shocks of the 1970s brought the mass production-mass consumption economy
to its knees. As the economic crisis deepened, social awareness was drawn away
from resources and the environment. Interest shifted away from the importance of
environmental issues to focus on economic problems, more specifically,

unemployment and the search for new economic growth models.
Given these worldwide conditions, many firms, especially Japanese firms,
channeled their technological development into process innovation, cut back on
energy and materials per unit output and endeavored to increase labor productivity
by reducing the volume of employment per unit output. Economic growth, albeit
sluggish, did result in an expansion in output and sales volumes, but ultimately
overall energy and natural resource consumption also increased.
Then the 1980s gave rise to the neo-liberalism movement in the United States
and Britain, where the focus turned toward market competition, with the adoption
of supply-side strategies being favored over demand-side strategies. Yet in that
time the development of micro electronics had prompted the rapid adoption of
information and communications technology in industry to cut costs and generate
new markets. This was accompanied by increased networking between companies
and markets. Piore and Sabel noted in the mid-1980s signs of a resurgence in
network-based industry organizations, with coordinating roles as summarized in
the three points cited earlier (Piore and Sabel 1984:265-272). So what happened to
inter-company and market networks from the 1980s onwards?
Today there are countless semi-horizontal and semi-vertical inter-company
networks that are based on information and communications technology, and
companies are actively expanding their involvement in technology transfers, joint
research, joint ventures and a variety of strategic alliances. These inter-company


12

Osamu Sudoh

networks have been developing gradually since the 1970s, but an examination of
growth patterns in the 1980s has identified two specific patterns.
The first pattern was the case in which inter-company networks spanned a

number of countries. This pattern closely resembled that of semi-vertical networks.
Strategically critical sectors like planning, research and development and fmance
were concentrated in major cities throughout North America, Asia and Western
Europe, and manufacturing and sales sectors operated in various forms, either as
subsidiaries or joint ventures with majority ownership by the parent company, or
through partnerships with other companies, and were scattered around the globe.
Looking at companies that fit this pattern, we see that they have implemented
comprehensive labor cost-cutting measures (with insecure employment and the
transfer of production bases to developing countries), and have further separated
their planning and operations divisions. In many cases, manufacturing processes
with the greatest potential for causing environmental pollution have been
transferred to developing nations with lax environmental regulations.
In the second pattern, inter-company networks were formed within a confined
area, national economic zone or regional economic zone. Within specific
economic zones, a major corporation would head up a semi-vertical network or a
semi-horizontal network consisting of a number of companies. There were many
examples of this network pattern in Germany, Sweden, Northern Italy and Japan.
Under this pattern we additionally saw the formation of multi-faceted networks
that also counted universities and local governments as participants. In Germany,
Sweden, Denmark and other northern European nations, and especially in Japan,
labor and management cooperated to improve quality and productivity, and
cooperative relationships between companies, universities and local governments
were formed and strengthened. Generally speaking, there was a very strong focus
on both environmental protection and economic growth throughout Germany and
Northern Europe, and this was probably not unrelated to the cooperative
relationships that existed in these local industry networks.
These two inter-company networking patterns emerged with the increasing use
of advanced technology and information networking in the 1980s. If we look at

The Knowledge Network in the Digital Economy and Sustainable Development

13

the increased inter-company networking since the mid 1990s when the Internet
entered the commercial arena, there seems to have been greater interaction and
cross penetration between the two patterns. Networking today is characterized by
the formation of diverse and complex global inter-company relationships through
joint ventures, technical cooperation, original equipment manufacturing (OEM:
products made under a partner's brand), and joint R&D. Companies consolidate
their mutual advantages to promote irmovation and to diversify their costs and
risks, so as to be able to flexibly cater to a number of markets each with their own
regional peculiarities. This kind of networking differs from the two networking
patterns prevalent in the 1980s, but does incorporate elements of both.

1.3 The Emerging Digital Economy and the Paradigm Shift
of the Market Structure

1.3.1 The Macroeconomic Significance of the Digital Economy
Since the mid-1990s there has been a push to create a massive global market built
around the Internet. This is, in other words, the digital economy. America, Europe
and Japan have been aggressively promoting the expansion of the digital economy,
and as a result increasingly complex and diverse relationships are being formed on
a global scale.
Looking back, up until around 1998 there was obvious skepticism about the
effects of IT and the Internet on the economy. Christopher Freeman's comments
(Freeman, C. 1992) are noteworthy in this regard. He pointed out that in most
major OECD countries, the growth rate of labor productivity was exceptionally
high in electronics industries such as computers and electronics components, and
there was a significant boost in capital productivity as well. Yet, in most countries,

the energy- and resource-intensive mass production paradigm still held the
greatest weight across industry as a whole, which was dominated by corporate
organizations, industrial regulations, social systems and infrastructure investment


14

Osamu Sudoh

designed for the mass-production paradigm. The new IT-based paradigm was not
consistently present throughout the economy, and any spill-over effects were
highly irregular. Even if individual companies were to actively introduce IT,
corporate structures, social systems, industrial regulations and infrastructure were
still geared to the old mass-production paradigm, which meant that the
revolutionary capabilities of IT could not fully permeate the economy, and any
impact on society was limited to specific areas.
However, information network upgrades, corporate organizational reforms to
enable the effective use of IT, and reforms to social systems and industrial
regulations to encompass new technological developments accelerated the shift
away from what Freeman calls the old techno-economic paradigm towards a new
one. The increased growth rate of labor productivity and the substantial boost in
capital productivity seen in the IT industry represented quantum leaps that were to
spread throughout the economy. Meanwhile, links in science, technology and
R&D were encouraged, creating innovation chain reactions, which would bring
about qualitative changes in the greater economic system and social system.
In the late 1990s, the IT industry and related sectors were the driving force
behind the growth of the US economy. In 2000, however the inflated share prices
that had underpinned that growth went into a freefall, and the US economy, that
had until then been reliant on what were now recognized as over-valued high-tech
share prices, looked set to enter a period of low growth. Yet there is no denying

that the technological innovations that will have a significant impact on the
economy in the decades to come are those knowledge-intensive innovations in IT,
biotechnology and new materials. Research and development in these fields has
become vital, with increasing ftision and integration between technologies in all
industry sectors. And advanced Internet-based networks that link these same
industry sectors will form the infrastructure

critical to the growth of

knowledge-intensive industry. Accordingly, we must envisage a framework in
which we can use this paradigm as a foundation for environmentally-friendly
sustainable development.


The Knowledge Network in the Digital Economy and Sustainable Development

15

1.3.2 The Digital Economy and Creation of e-Marketplaces
The core of Internet business at present is business-to-business, or B2B as it is
known. The scale of the B2B market is vastly different to that of the B2C
(business to consumer) market. Upon closer inspection, electronics and IT-related
products, or electronic component purchasing, have by far the largest market share.
This is followed by auto parts procurement and construction. Initially B2B begins
between specific companies with orders placed over the Internet with existing
suppliers. Eventually, more and more parts suppliers from all around the world
will be included and companies will be able to produce better products at low cost
and procure parts by selecting companies that always deliver on time.
Thus, e-Marketplaces have a vital role to play. An e-Marketplace is an
environment that can be accessed by companies anywhere, enabling orders to be

placed and received over the Web. e-Marketplaces for automotive parts and
electronic components are already in place around the world.
e-Marketplaces generally have four functions. The fundamental feature of
current e-Marketplaces is (1) the use of an "aggregator" or "catalog" for
transactions with fixed prices that is suitable for handling the sale of standard
products between multiple buyers and sellers. While these transactions do indeed
have a large share of the market, this frmction alone provides little incentive for
new capital investment. Therefore, e-Marketplaces should also feature the
following three functions along with the first: (2) seller-driven "auctions" for the
trading of rare or used goods; (3) buyer-driven "reverse auctions" where multiple
sellers compete to sell products; and (4) exchanges where custom-made goods
with standard product specifications are traded under mutual conditions. In the
future these four functions will be integrated into Web solutions that will enable
one-stop processing via a browser. Integrating these functions is sure to make
e-Marketplaces truly user friendly for both buyer and seller.
At present, the primary ftinction of e-Marketplaces is the placing and receiving
of orders, but in the future they will need to be linked to payment settlement
networks. They will also need to provide insurance options, especially insurance


16

Osamu Sudoh

against damages or loss, and credit functions. Currently major companies mostly
place orders with small and medium enterprises (SMEs) that receive those orders
and supply the parts. Insufficient capital and poor capital liquidity are a potential
problem for these SMEs. A bridging finance fiinction will need to be incorporated.
Currently, trading companies, non-banks and regional financial institutions
provide bridging finance to SMEs, but this function is not available in

e-Marketplaces. More and more e-Marketplaces now offering credit functions and
distribution links are also important. If orders are processed over the Net, but
distribution is not efficient, then this will greatly impair overall efficiency.
IT investment is essential for providing these functions, even if they are
outsourced. Existing organizational structures need to be reviewed and business
practices and industrial relations (labor-management relations) should be
overhauled to stimulate this investment.
The IT revolution has not only had implications in the economic arena by
changing company structures and behavior patterns, it has also affected people's
lifestyles. Economic systems are going through sweeping changes on a global
scale as they move toward a new economic order.
The full-scale implementation of B2C will take some time given the many
system-related issues that need to be resolved on an international level, such as the
systemization of electronic authentication and digital signatures, and the
protection of personal information. But if we succeed in coordinating the systems
of individual companies, then B2C will really take off. B2C is already making
impressive inroads in certain sectors, including the automotive industry,
computers, peripheral equipment and travel, and B2C is expected to post
significant growth in the ftiture in consulting, banking, insurance, securities,
education, health care and other service sectors.
The nature of e-commerce generally means that the parties do not interact
face-to-face, and as such, establishing trust in the market has become a major
issue. This issue is even more crucial in B2C transactions, and the formation of
Web-based communities that facilitate horizontal communication has come into
focus. For example, by including fimctions for consumers to give their opinions


The Knowledge Network in the Digital Economy and Sustainable Development

17

and exchange product or service evaluations, and by having the service provider
respond promptly to any questions or reservations, businesses can boost the
credibility of Web-based business, and at the same time bolster the credibility of
businesses that advertise on the Web, and provide useful market information. This
will also work to improve investor evaluations. Reliable third-party checks must
be incorporated to provide such a place for doing business, which means that
elements external to the market will have to be introduced.
Now that we have described the international climate for the digital economy,
we next look at the significance of information networks in sustainable
development based on global environmental protection, the major issue of the
twenty-first century, and exmine information networks in relation to industrial
organizations and the governance of local communities. As explained by von
Weizsäcker (1992), information technology can be applied to environmental
issues. In the first place, it can be used to accurately monitor and analyze ongoing
compound environmental degradation. Also, information technology can make it
possible to tailor production to adapt to fluctuations in demand. It can also
facilitate advanced quality and inventory control, which in turn can lead to the
more efficient utilization of energy and resources. In other words, information
technology can improve energy productivity (gross domestic product per
kilojoule).

Moreover,

systematic

upgrades of urban

transport

facilities,

telecommuting (working from home) and videoconferencing can all work to
reduce the volume of traffic, attenuating air pollution. Yet it must be noted that
there is no guarantee that the growth of the digital economy, which grew out of the
IT boom, will be consistent with sustainable development. Therefore, the next
section will focus on how we should integrate the digital economy and sustainable
development, and provide a vision for friture society.


18

Osamu Sudoh

1.4 Creating a Sustainable Society
Global action to deal with environment problems will be essential in the
twenty-first

century. Today's global environmental problems call for a

reexamination of our modem-day materialistic civilization, and ensuing global
environmental protection will require the adoption of new socioeconomic systems
and new ways of life. As such, this chapter examines the relationship between the
digital economy and e-Democracy and global environmental issues, and exmines
how information networks can contribute to a new form of social development
that realizes environmental protection.

1.4.1 Zero Emissions and the Formation of New Industry Relations
In 1994, the United Nations University (UNU) announced the UNU Zero
Emissions Research Initiative (Anon. 1994). Under this initiative, "zero

emissions" is defined as "the complete elimination of all emissions into the
hydrosphere and atmosphere, and the conversion of waste products from one
industrial sector into reusable materials for another sector." The initiative states
that to survive the twenty-first century, industry must redesign manufacturing
processes, give priority to the use of recyclable materials, and ultimately aim to
reduce emissions to zero (Anon. 1994: 2).
In other words, industry must subject the types of materials it uses, and their
manufacturing and distribution processes to a strict reexamination, and move
toward a zero emissions-based industrial structure in which no waste products are
generated at any stage of the production and distribution process. This will require
industry to undergo the massive task of reviewing conventional production and
distribution processes and creating new industry relations.
For now, the United Nations University's approach is to encourage step-by-step
efforts in local communities and then to link these efforts together. One example
given by the United Nations University is the use of sugar-based cleansing agents
in the brewing industry (Anon. 1994).